Hawai'i hotels are selling fewer rooms, but that's not stopping revenue from growing at a record pace.

The number of hotel rooms sold fell 5.4 percent in July — the seventh straight month of decline — in part because of a drop in visitors and a shift to using condominiums and time-shares, according to a report released yesterday by Hospitality Advisors LLC. But a continued rise in hotel room rates pushed revenue this year to $1.9 billion, up 9.3 percent compared with the same period last year.

Statewide hotel occupancy — despite falling 2.3 percent points from a year earlier — remained relatively strong at 86.6 percent last month, enabling hoteliers to continue raising room rates. Average room rates grew 12.8 percent to $198.22, pushing up revenue per available room 9.9 percent to $171.74.

The report comes a day after the state released figures showing visitor arrivals fell 1.9 percent in July. But the drop in visitors appeared to have little effect on hotel revenue.

"July was a watershed month for us," said Mike Paulin, owner of Aqua Hotels & Resorts. "It was unbelievable. We're trying to reinvent the calendar for 11 more Julys every year. It's just been amazing."

Factors contributing to the continued increase in room rates include a lower room supply because of renovations and conversions to time-shares and condominiums, as well as upgrades in hotel properties.

After two years of record-breaking growth, Hawai'i's visitor industry appears to be softening, but 2006 revenues are still expected to top last year's record $3 billion, said Hospitality Advisors president Joseph Toy.

"With the concerns of interest rates and oil prices and airlines and all that, it looks like we might be past the peak, but the hope is that we have a soft landing," Toy said. "I think that the market is in better shape to sustain a downturn because the hotel owners are better capitalized, there's a lot more equity in the hotels than in the past (and) much more sophisticated ownership."

"I'm fairly confident we'll probably see another record in room revenues, but perhaps not in the number of room nights sold," he said. "We're going to have a very strong year. ... We're arguably the strongest hotel market in the country."

All hotel sectors, from budget to luxury, reported increases in rates and revenue per available room despite declines in occupancy.

Occupancy fell on all major islands except for Maui, which remained relatively flat. But average daily rate and revenue per available room increased on all islands.

The survey, compiled by Smith Travel Research with Hospitality Advisors, included 144 properties representing about 46,647 rooms, or 79.4 percent of all lodging properties with 20 rooms or more in the state, including full service, limited service and condominium hotels.

Reach Lynda Arakawa at larakawa@honoluluadvertiser.com.